It’s ironic that the government and media claimed that the Home Value Code of Conduct (HVCC) was needed because mortgage brokers put pressure on appraisers to “hit” value.

In reality, lenders started requiring desk reviews and underwriters started pulling their own AVMs (Automated Valuation Model) from their desk at least 2 years prior to the HVCC going into effect. Here’s the ironic part, lenders started doing their job! The underwriter is supposed to determine the risk on every file and that includes the appraisal.

Now statistics show that since the implementation of the HVCC, appraisal fraud has increased by 46%!

203K FHA Loan


203K  FHA Loan Information


1. The 203K FHA loan may be used for the purchase or refinance of one-to-four (single family)
residences, including HUD REO properties; Fixed or Adjustable Rate
2. Combines the funds to purchase or refinance (pay off existing liens) along
with the funds needed to repair/rehabilitate the property. Repairs are
completed after closing. (NOTE: Cannot do a Cash-Out Refinance)
3. One closing, with rehabilitation funds escrowed and disbursed as the work is
satisfactorily completed
4. The 203K FHA loan can be used to update homes, correct health and safety issues, pay for higher
cost items such as a roof, etc.
5. Property value must be sufficient to purchase/refinance and complete the
6. Property must be 100% complete or equivalent document and must be at
least one (1) year old. (EXCEPTION: Presidentially declared disaster areas for
one (1) year after the disaster)
7. Borrower and credit eligibility same as for other programs (No Investors,
including REO sales)


1. No minimum threshold; maximum is $35,000, includes the 10% contingency
2. Purchase Transaction – Appraisal is completed as “Subject To”
3. Refinance Transaction – Requires two appraisals; One “As-is” and One “Subject
To” (both appraisals may be completed by the same appraiser)
4. Minimum 10% Contingency
5. Consultant (and plan) is not required; General contractor is not required
6. Lender is responsible for ensuring that the cost of the repair is reasonable
and customary for the area in which the property is located
7. Preparation of architectural exhibits (as listed in Handbook 4240.4 REV-2,
Paragraph 3 – 2) is not required


1. Repair/Replacement of roofs, gutters and downspouts
2. Repair/Replacement/upgrade of existing HVAC systems
3. Repair/Replacement/upgrade of plumbing and electrical systems
4. Repair/Replacement of flooring
5. Minor remodeling, such as kitchens, which does not involve structural repairs
6. Painting, both exterior and interior
7. Weatherization, including storm windows and doors, insulation, weather
stripping, etc.
8. Purchase and installation of appliances, including free-standing ranges,
refrigerators, washers/dryers, dishwashers and microwave ovens
9. Accessibility improvements for persons with disabilities
10. Connection to public water or sewage system
11. Repair/replace/add exterior decks, patios, porches, sidewalks, driveways
12. Basement finishing and remodeling, which does not involve structural repairs
13. Basement waterproofing, including mold removal
14. Window and door replacements and exterior wall re-siding
15. Septic system and/or well repair or replacement


1. Major rehabilitation remodeling, such as the relocation of a load-bearing wall
2. New construction (including room additions)
3. Repair of structural damage
4. Manufactured Home foundation repairs / upgrades to meet HUD standards
5. Landscaping or similar site amenity improvements, including fence
6. Any repair or improvement requiring a work schedule longer than three (3)
months; or Rehabilitation activities that require more than two (2) payments
per specialized contractor. That would necessitate a “consultant” to develop a
“Specification of Repairs/Work Write-Up”
7. Repairs requiring detailed drawings plans or architectural exhibits, or require
a plan reviewer
8. Result in work not starting within 30 days after loan closing; or cause the
mortgagor to be displaced from the property for more than 30 days during
the time the rehabilitation work is being conducted. (FHA anticipates that, in
a typical case, the mortgagor would be able to occupy the property after
mortgage loan closing)
9. Lead-based paint stabilization or abatement of lead-based paint hazards


1. Contractor to provide a resume and two references (Prior to Close)
2. A copy of the contractor’s cost estimate(s) and the Homeowner/Contractor
Agreement(s) (Prior to Close)
3. Rehabilitation cost estimate (At Close)
4. 203k FHA Loan Agreement (At Close)
5. 203k FHA Rider (At Close)
6. Mortgagors Letter of Completion (At Close)


1. The lesser of:
A. Maximum (statutory) mortgage limit for area
B. “As-is” value (purchase price or for refinances, the true appraised “As-
Is” value) plus cost of rehabilitation
C. 110% of “After Improved” value; Condominiums limited to 100% of
“After Improved” value.
D. If the borrower has owned the property for less than one year, the
acquisition cost must be used to determine the maximum mortgage


1. Must use contractors to complete repairs/rehabilitation (unless borrower can
demonstrate needed expertise/experience)
2. Use of contractors:
A. Borrower selects contractor
B. Contractors provide estimates for the work to be done, if applicable
C. Lender must review the contractor’s credentials verifying jurisdictional
requirements for licensing, bonding & insurance are met (need copy of
all these docs)
D. The cost estimate(s) must clearly state the nature and type of repair
and the cost for completion of the work item
E. The lender will review the work plans and estimates with the borrower
F. The lender may require the mortgagor to provide additional cost
estimates if necessary
3. Borrower(s) to complete work – Lender must document that:
A. The borrower has the necessary expertise and experience to complete
the work in a satisfactory (workmanlike) manner (ie: borrower is a
licensed plumber and will complete that portion of the work)
B. The work can be completed in a timely manner
C. A “self-help” agreement is executed by the borrower and lender
D. The cost of labor is included in the repair/rehabilitation cost (in case the
borrower is unable to complete the work and a contractor must be
hired). The mortgagor may not be compensated for his/her labor.
E. Estimates of the repair/rehabilitation costs
F. The borrower has provided written estimates from the suppliers of the
materials that the mortgagor will purchase
G. “Cost plus” or “time and material” contracts are prohibited
4. The Rehabilitation Construction Period begins when the mortgage loan is


1. HUD also permits 203K FHA mortgages to be used for individual
units in condominium projects that have been approved by FHA. The program
was not intended to be a project mortgage insurance program, as large scale
development has considerably more risk than individual single-family mortgage
insurance. Therefore, condominium rehabilitation is subject to the following
A. Owner occupant only; no investors
B. Rehabilitation is limited only to the interior of the unit. Mortgage
proceeds are not to be used for the rehabilitation of exteriors or other
areas which are the responsibility of the condominium association,
except for the installation of firewalls in the attic for the unit
C. Only the lesser of five units per condominium association or 25 percent
of the total number of units can be undergoing rehabilitation at any one
D. The maximum 203K FHA mortgage amount cannot exceed 100 percent of the after
Improved value
2. After rehabilitation is complete, the individual buildings within the
condominium must not contain more than four units. By law, Section 203 (k)
can only be used to rehabilitate units in one-to-four unit structures. However,
this does not mean that the condominium project, as a whole, can only have
four units or that all individual structures must be detached.
Example: A project might consist of six buildings each containing four
units, total of 24 units in the project and, thus, be eligible for Section 203
(k). Likewise, a project could contain a row of more than four attached
town-houses and be eligible for a 203K FHA loan because HUD considers
each town-house as one structure, provided each unit is separated by a
1½ hour firewall (from foundation up to the roof).


1. Supplemental Origination Fee is the GREATER of 1.5% of the mortgage
allocated to rehabilitation (the cost of the repairs/rehabilitation) OR $350
2. Customary for industry to charge both a supplemental origination fee and
discount points to offset the additional cost of administering the escrow
account and related responsibilities of the 203k loan. Note: Total Discount
Points can be charged ONLY ONCE. Those reflected on the 203k worksheet
(HUD 92700) must be subtracted from the total amount, with the difference
reflected on the MCAW. (Example: Total discount points are $3,000. $1200
reflected on the 203k Worksheet. Only $1800 may be reflected on the
3. Appraised Value – Estimates the value “after improved”. The purchase price
(or the true appraised “As-Is” value for refinances) is used as the “As-Is” value
4. Both pages of the 203K FHA worksheet (HUD 92700) must be used to accurately
underwrite a 203K FHA loan
5. The calculations (based on file documented data) is recorded on page 1
6. The data is transferred to the appropriate section (purchase or refinance) on
page 2
7. The data is transferred from page 2 to the Mortgage Credit Analysis
worksheet (MCAW) (HUD 92900 WS or HUD 92900 PUR, as applicable)


1. No more than two payments may be made to each specialized contractor /
2. The Lender will allow the first payment at closing to cover for, and not
exceed, actual required contractor deposits, building permits, and/or the cost
of building materials incurred prior to construction. These must be evidenced
on contractor estimates or other verifiable documentation in the file along
with a completed Initial Disbursement Request Form prior to clear to close.
Total costs of repairs cannot exceed $35,000, including the 10% contingency,
final inspection fee, and supplemental origination fee. The first payment at
closing may not exceed 50% of the total estimated costs of repairs.
A. Underwriter must request approval from Construction Lending
Department prior to final approval and provide a closing condition that
specifies the name of the payee and the exact amount of each check to
be disbursed at closing.
3. When permits are required from a local or State building authority, permit
fees will be reimbursed to the contractor at closing
A. If they are included in the contractors estimate or
B. If not included in the estimate but all proceeds are not needed for the
completion of the improvements
4. The final payment to the contractor will be made following completion of all
work and release of any and all liens arising out of the contract or submission
of receipts or other evidence of payment covering all subcontractors or
suppliers who file a legal claim
5. When necessary, the mortgagee may arrange a payment schedule, not to
exceed two releases per specialized contractor (an initial release plus a final
6. Mortgagees are to issue payments solely to the contractor, unless the
mortgagor is performing the work under a self-help arrangement, in which
case the mortgagor may only be reimbursed for materials purchased in
accordance with the previously obtained estimates
7. All loans must have a final inspection regardless of the repair/rehabilitation
amount. Each loan will be charged a $100 final inspection fee.
8. Before a final release is made, the mortgagor must sign a statement
acknowledging that the work has been completed in a workmanlike and
satisfactory manner. Final Inspection is required.


1. Borrower makes application with lender and provides the standard credit
2. Lender pulls: CAIVRS, LDP & GSA, Condo approval (if applicable), Any issues
are resolved prior to continuing the process
3. Case number is ordered
4. Appraisal is ordered (and a copy of the cost estimates & other pertinent
information provided with the order), the appraiser is to indicate in the
reconciliation section of the appraisal report an “after-improved” value subject
to completion of the proposed repairs and/or improvements
5. Processor orders credit report, VOD, VOE, VOR, etc.. Begins assembling the
property and credit package for underwriter
6. The complete property and credit package is provided to DE Underwriter
7. DE Underwriter underwrites package, logs appraisal into the FHA Connection
and decision is communicated
8. Prior-to-Closing conditions are cleared; Loan closes
9. Repair/rehabilitation Escrow account is set up
10. The repairs are completed, with the funds appropriately disbursed
A. Rehabilitation escrow account is closed out
B. FHA Connection updated to show the close-out (see FAQ’s)


What are the “closeout requirements” under the 203K FHA loan program?

– The mortgagee electronically certifies the closeout via the FHA
Connection and is not required to forward the closeout documents to FHA. As
with all FHA case binders, the originator must retain the file, either in hard copy or
electronic format, for two years following endorsement of the mortgage. Proper
close-out means that the mortgagee has certified that it has reviewed and verified
for accuracy of the following without limitations: mortgagors acknowledgement of
satisfactory completion, evidence of release of lien(s), mortgagees inspection
report(s), change orders, mortgage accounting of the escrow funds and record of

Can the 203K FHA program be used for repairs and improvements on purchases of HUD REO homes?

– Like the regular Section 203(k) program, Streamlined (k)
may be used for single family housing sold by HUD. REO properties that have been
designated by FHA’s Management and Marketing contractor (M&M) as “insurable”
with repair Escrow ($5,000 or less in required repairs) or “uninsurable” (with more
than $5,000 but no more than $35,000 in required repairs) are eligible for the
Streamlined (k) program provided that the repairs qualify as eligible work items.
Can the Streamline (K) program be used for refinancing a current
mortgage? – The Streamline (k) program is also available for mortgage refinance
transactions including those where the property is owned free-and clear. Only
credit qualifying “no cash out” refinance transactions with an appraisal are eligible
for the Streamlined (k) program. The form HUD 92700 provides instructions for
calculating the maximum mortgage for Streamlined (k) loans for purchase and
refinance transactions. The requirements to use the lowest sales price within the
last year does not apply to the Streamlined (k) program.

May the mortgagee establish a contingency Reserve?

– The lender requires a 10% contingency reserve on all Streamline (k) program. Funds held in contingency
reserve must be used solely to pay for the proposed repairs or improvements and
any unforeseen items related to these repair items. Any unspent funds remaining
after the final work item payment(s) is made, must be applied to the mortgage

Can we combine the Streamlined (K) with an Energy Efficient Mortgage

– The EEM program, as described in ML 05-21, may be used in conjunction
with the 203K FHA program. The amounts permissible under the EEM
program as well as the qualifying requirements are in addition to those available
under the Streamlined (k) program and, thus, combined may exceed the $35,000
Streamlined (k) repair cost limit. Both the cost of EEM improvements as well as
weatherization items (not to exceed $2,000) may be added to the total FHA loan

Contact us to find out more information about the 203K FHA loan.

Today’s FHA Mortgage Rates.

November 16,2009

*Please note that FHA Rates are subject to change, sometimes several times per day.*

*All FHA Rates assume a credit score of at least 620.*

*All FHA Rates posted are based on 30 day locks. *

*Please note that the FHA Rates posted are subject to adjustments for the following criteria*

1) Loans under $100,000.00.

2) State specific adjustments.

FHA 30 year fixed

With 1.375 point – 4.625%!

With 1/2 (0.5%) point – 4.750%

With 0 points – 4.875%!

FHA 15 year fixed.

With 1/2 point (0.5%) – 4.250%!

With 0 points – 4.375%!

FHA 3/1  year ARM

With 1 point – 3.750%!

With 0 points – 4.250%

FHA 5/1  year ARM

With 1.250 point – 4.125%

With .250 point – 4.375%

With 0 points – 4.50%

Click here for your free customized quote

Do Not Try This At Home!

Another “snake in the water” story from the heart of Texas . Not just a yarn, though. Got pics.

In 20 years of fishing the Middle/Upper Brazos River, I can honestly say that I have never encountered a venomous snake (pit viper) within the riverbed. However, as I tell my clients, go outside the riverbed and that can be a very different story.

Obviously, just because I have never come across a venomous snake in the river, does not in any way mean they are not there. In fact, I always remain vigilant and on the lookout knowing that I’m simply overdue for my first encounter.

The way I look at it, Texas , venomous snakes and the outdoors will always go hand in hand.

So, I wasn’t too surprised when I observed a juvenile rattlesnake headed across the river while I was in my kayak flipping a jig for bass.


I continue fishing. However, I can’t help to notice the rattler has changed its course and is headed straight for my kayak.


At this point, I’ve pretty much quit fishing and have my attention focused on the intentions of this potentially pesky pit viper.

While tracking the rattler’s movement, I couldn’t help but think, from a fish’s point of view, how enticing the serpentine motion of this snake looked while in the water.

Suddenly, I am jolted back to reality by the fact the rattler is now alongside my kayak and is lifting its head out of the water in an apparent attempt to come aboard.


No way I’m having this ill intentioned reptilian hitchhiker nosing around the kayak. So, with a couple whacks of the paddle, it’s now docile as can be.


Now my mind begins to wonder… Hamm .

This rattler looks like mighty good big bass bait!!!


I put him in one of the footwalls on the kayak and paddle over to a series of submerged river lay downs so I can begin to put my plan into action.


Here is my “Superstar” getting warmed up in the bullpen.

Put me in, Coach!!!

I now cautiously rig the snake by hooking it through the bottom of the jaw and through the top of the head onto a weed less black 3/4 oz. jig.


On my sixth cast into the snag infested lay down my jig n snake combo gets destroyed on the fall as indicated by a telltale “thump” that reverberates all the way down my rod blank. I set the hook hard and immediately feel stiff resistance on the other end from what I know is a solid fish.

What happens next is something I’ll likely never forget as I watch my bass come cart wheeling out of the water with the rattler hanging out of it’s mouth!

The LMB gave a really good account of itself and I eventually get her alongside the kayak. I cautiously lip the opposite side of the cavernous mouth where the fish is hooked.

I now take a moment to pose with my oversize snake eating river bass before returning her back into the river depths.


I admit, my curiosity might have gotten the best of me on this one. However, I just couldn’t help it.

In the end…

It was just another Kayak Fishing Adventure on the Brazos River , Texas.


Please feel free to share your fishing stories with us!

It’s official.

In landslide votes, the extension/expansion of the first time home buyer tax credit passed both houses of Congress and is now on its way to the President’s desk for signing tomorrow.

The credit now goes through May 1st, which means you can sign a contract through May 1st as long as you close on the property by June 30th.
It gives up to $8000 for first time buyers (defined as not having owned a home for the past three years) and up to a $6500 credit to move-up buyers who have owned and occupied their current homes for at least five years.

Again, you have to be an owner occupant of this primary residence, no investors here, and there is an income cap for single filers at $125,000 and joint filers at $225,000. Oh, and the home you buy can’t be more than $800,000.